Yes, it’s that time of year again. It’s that nostalgic week with Christmas / Hanukkah behind us and the New Year’s Celebration front and center. There is something about flipping the calendar that seems to spark a thoughtful review of the year gone by and to wonder what’s in store for us in the next twelve months.
For some reason, Wall Street prognosticators (who like to refer to themselves as “strategists”) seem inclined to provide readers & clients with their official predictions for the upcoming year as a means to provide the incremental perspective they so often claim to have (and sell).
In that light, we’re happy to jump into the fray and provide our own “official bold prediction” on where stock and bond markets are going in 2017:
“We don’t know.”
Sorry to disappoint you all but if you read our blog posts enough, you should have seen that coming. We readily acknowledge to NOT being able to accurately predict what’s going to happen in the next twelve months. But we are happy to admit what many other advisors have so much difficulty admitting: we don’t know because NO ONE knows. And anyone that claims to provide you with assurance as to what’s going to happen in calendar year 2017 should be classified in the same category with tarot card readers and astronomers.
Now this doesn’t mean we don’t have an opinion. But having an opinion on near-term market moves and a long term investment strategy are not the same thing. In fact, these two mindsets often conflict as knee-jerk reactions to market moves often works to the detriment of building wealth over the long term.
So why don’t we provide predictions? Two main reasons:
- Predictions are almost always wrong: Since 2000, people with important-sounding titles like “Chief Market Strategist” predicted the stock market to go UP every single year by an average of 9.5%. In reality, it was up about 3.9% and actually declined in 5 of the 16 years. That includes the massive decline in 2008, when the average prediction was for an 11% rise and the S&P 500 declined 38%! So why are the predictions so biased to be bullish? That’s because…..
- Predictions drive commissions & fees: In the short term (less than a few years), selling predictions as “market strategy” provides some insight on the mindset of the source. Predictions are usually issued by entities who benefit from trading and gathering assets. Keep in mind who is issuing these forecasts: banks and brokerage houses who make their livelihood on some mix of trading commissions, selling high-fee mutual funds or gathering assets. A business model with these compensation structures might have their crystal ball clouded up by the potential for a large bonus. Said differently, these folks are speculators and/or salespeople, not investors. In fact, the louder and more outrageous these predictions are, the more they remind us of the weekly NFL “Vegas Insiders” who claim to have some unique insight as to why the Browns might cover the point spread against the Steelers this week, a dubious bet indeed.
The point is this: we have no control over the stock and bond markets and while we might sound like a broken record, we have to emphasize again: we all need to focus on the aspects of our financial lives that we can control. Again, these factors include our risk-adjusted asset allocation, investment fees, savings/spending rate, tax liability, value to employers/clients and most importantly, our emotions.
Over the last century or so, patient investors in the U.S. have been rewarded with owning a piece of the miracle that is capitalism. This assumes of course, they can keep their heads despite the occasional roller coaster ride of gut-wrenching declines and euphoric increases.
Sure those predictions are fun and you might even find it slightly amusing to hear a market “expert” opine on exactly where the S&P 500 may close 2017. But we’re in the business of helping our clients maintain and grow wealth. We are not in the entertainment business. Ask yourself this: If someone really knew exactly where things are going, why would they be so generous to let us in on such valuable information?
Best wishes to all for a happy and healthy 2017!